Friday, March 31, 2006

Important keyword decision from SDNY

This case, decided March 30, is particularly important because of a recent case allowing a trademark infringement claim against a keyword purchaser to proceed. Eric Goldman has more on that case.

Merck & Co., Inc. v. Mediplan Health Consulting, Inc., --- F.Supp.2d ----, 2006 WL 800756 (S.D.N.Y.)

Merck brought six cases against Canadian online pharmacies targeting US consumers. The pharmacies offer generic versions of Merck’s blockbuster cholesterol drug ZOCOR. Some of the defendants use the ZOCOR mark and/or logo, identifying their products as “generic ZOCOR” or the like. Some of the defendants also bought “zocor” as a keyword from Google and Yahoo! (though Yahoo!’s new keyword policy may or may not hamper the latter practice).

ZOCOR’s active ingredient is simvastatin; since November 1986, Merck has been the only party authorized by the US patent laws and the FDA to sell simvastatin in the US. (Eagle eyes will have spotted that this exclusivity will not last much longer; here’s some discussion of the patent situation.) Exclusivity is over in Canada, where defendants operate their websites. They fill online orders, including for generic simvastatin and for Zocor manufactured by Merck’s Canadian affiliates. Although the sites are Canadian, Americans are the target; prices are in dollars, there’s substantial sales volume to the US, the sites have names like “,” etc.

With the exception of one site, the defendants use the ZOCOR mark in connection with generic simvastatin; for example, searching for “zocor” on the CanadaDrugs site leads to results for “Zocor” and “Generic Zocor.” Some of the defendants also use the Zocor design mark. The CrossBorder site sells “Zocor (simvastatin)” on the same page as generic simvastatin, but doesn’t use “generic Zocor” or any phrase like that.

None of the defendants are authorized to sell prescription drugs in the US.

This led to four basic claims: (1) trademark infringement based on the use of the ZOCOR mark and design on the websites; (2) trademark infringement based on the keyword buys; (3) trademark dilution; and (4) false advertising, based on a false implicit claim that defendants are legally authorized to sell Canadian drugs in the US and that Merck sponsors or approves their products. The defendants moved to dismiss and for judgment on the pleadings.

The court had little difficulty holding that, as to most of the defendants, Merck had stated a claim for trademark infringement based on the use of the marks on the websites. Defendants might establish a valid nominative fair use or comparative advertising defense based on their argument that no reasonable patient could think that “Zocor generic” is anything but a generic alternative to Zocor, but Merck properly alleged likely and even actual confusion. The court did dismiss Merck’s claims against CrossBorder, since there was nothing improper about offering generic simvastatin on the same page as Zocor; generic versions are often placed next to branded ones in physical stores. (Is this an implicit holding that no reasonable consumer would be fooled, or a holding that, as a matter of law, this type of comparative advertising is fair use? The court doesn’t specify.)

The court rejected the claim that keyword buys constituted trademark infringement on the grounds that keyword purchases are not trademark “use.” Following the 1-800 Contacts case, the court reasoned that the mark was not placed “on the goods or their containers or the displays associated therewith or on the tags or labels affixed thereto,” 15 U.S.C. § 1127(1). The court noted in a footnote the conflict this creates with the GEICO and American Blind cases against Google. Somewhat inconsistently, the court also gave significance to the fact that the defendants actually sell Canadian Zocor on their sites, concluding that “[u]nder these circumstances,” the keyword purchases were not improper. In addition, the court’s ultimate conclusion that keyword purchases are not an “independent” basis for a trademark claim leaves open the possibility that they will factor into whether defendants’ other uses of the term are confusing.

On the dilution claim, Judge Chin made the all-too-common mistake of importing federal standards into the state claims based on pre-Victoria’s Secret cases holding that the standards were the same. (Not that I like dilution or anything, but the failure to distinguish state and federal claims bugs me.) Fame was not at issue; actual dilution was, specifically blurring. Merck’s allegations of dilution were sufficient to sustain the claim except as to CrossBorder, despite defendants’ invocation of the statutory comparative advertising exception under § 43(c)(4).

Merck claimed that defendants’ use of the ZOCOR mark falsely implies to US consumers that defendants’ generic simvastatin is legally authorized by the FDA for US sale or that Merck approves the sales because patients understand that only Merck’s ZOCOR brand simvastatin can be lawfully sold in the US (… for now). Though the latter part of the claim sounds like false designation of origin, the court characterized both parts as false advertising. (Is lack of FDA approval material to consumers in this specific case? I strongly believe that FDA approval matters with respect to beliefs about safety and efficacy of a given drug, but the very phenomenon of the Canadian internet pharmacy suggests that consumers don’t care about FDA/patent-related marketing exclusivity, or even inspection of manufacturing conditions, that the FDA carries out.)

Anyway, the case law rejects false advertising claims based on implied governmental approval. To my knowledge, no one’s ever tested this with a consumer survey showing that consumers really do believe the government approved a particular product; I’d love to see the outcome of that case. In trademark we sometimes accept de facto consumer confusion to further other goals, usually competition goals. Would we do so in false advertising?

Here, the defendants don’t explicitly misrepresent FDA approval for their generic simvastatin; at least two make statements to the contrary, giving the FDA's position that importing drugs from Canadian pharmacies violates the law. Scroll down for an example -- though I've got to say I find this tiny disclosure at the bottom of a long page unlikely to be effective at informing consumers. Because there was no explicit falsity, Merck’s FDA claims – including claims based on the sale of Zocor manufactured by Merck’s Canadian affiliate – were dismissed.

However, the false designation-type claim that defendants’ activities are likely to cause confusion as to the affiliation of defendants’ generic simvastatin with Merck was actionable. (As to CrossBorder? If CrossBorder’s use of the ZOCOR mark can’t violate trademark law, recharacterizing the issue as one of false advertising shouldn’t avail Merck. I suspect CrossBorder’s attorneys might seek clarification on this portion of the ruling.)

No comments: